UPDATE 2-Rona sales tumble, shares drop 10 pct

Tue May 10, 2011 2:33pm EDT

* Loss/share C$0.13 versus analyst forecast C$0.03

* Same-store sales fall 12.6 percent

* Shares fall as much as 10 percent (Recasts; adds analyst comment, details)

By S. John Tilak

TORONTO, May 10 (Reuters) - Rona Inc (RON.TO) reported a wider-than-expected quarterly loss on Tuesday as homeowners pulled back on renovation projects, leading to a sharp decline in sales at Canada's No.1 do-it-yourself chain.

The company's shares tumbled after it said sales at established stores fell 12.6 percent in the first quarter. The stock slumped as much as 10 percent to its lowest in almost two years.

The decline from sales a year earlier in part reflected a rush by consumers in early 2010 to buy building materials for projects before a renovation tax credit program expired.

That said, consumer confidence has not fully returned even as Canada's economic downturn eased over the past year, and many homeowevers are holding back on major projects, Rona said. The company said unfavorable weather also contributed to the sales decline.

"It was pretty ugly," Edward Jones analyst Brian Yarbrough said. "The earnings miss was substantial. They're not getting any leverage on sales."

The sales decline in stores opened at least a year, or same-store sales, was greater than high-single-digit fall Yarbrough had expected.

"The environment remained very challenging in the Canadian home improvement sector," he said. "It comes down to the fact that consumers are not willing to spend on bigger renovation projects."

Rona, which competes with Home Depot Inc (HD.N) and Lowe's Cos Inc (LOW.N), reported a first-quarter loss of C$16.8 million, or 13 Canadian cents a share, compared with a net income of C$3 million, or 2 Canadian cents a share, a year earlier.

Analysts on average had expected a loss of 3 Canadian cents a share, according to Thomson Reuters I/B/E/S.

Revenue fell 4 percent to C$918.2 million, missing the average analyst estimate of C$931.8 million.

The Boucherville, Quebec-based company's shares, down 19 percent in the past 52 weeks, fell 10 percent to a nearly two-year low of C$11.95 on Tuesday on the Toronto Stock Exchange.

The stock was trading at C$12.22, down 8 percent. ($1=0.96 Canadian) (Reporting by S. John Tilak in Toronto, additional reporting by Maneesha Tiwari in Bangalore)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.